00:00Jay, tell us a little bit about the quarter, and I think we all want to know how AI is
00:05impacting your business.
00:06Let's start there.
00:09So, AI is a massive opportunity because what AI is doing is bringing lots of AI agents in the enterprise.
00:18Agents are somewhat like people.
00:21Traditionally, users have been the weakest link for cybersecurity.
00:25Now, AI agents are becoming the weakest link.
00:28How do you secure them?
00:30Well, you need to make sure that you can do one-to-one connection.
00:33That means an agent can only access certain applications and nothing more.
00:37That requires a global infrastructure that ZSquare has built in the form of zero-toss exchange.
00:43That's why we're very bullish about our future.
00:47So, go ahead, Mandeep.
00:49Yeah, I mean, Jay, I think the street obviously didn't like the billings number in your print, and that was
00:55seen as, you know, moderating.
00:57Like, was that attributed primarily because of seed growth slowing down, and we keep hearing, you know, layoffs like the
01:06one that ZSquare announced yesterday?
01:08Or was there anything more to the billings number last night?
01:12So, billings is a secondary number for us.
01:15The number one area of focus for is ARR growth and revenue growth.
01:20Our revenue grew 26% year over year.
01:23ARR, 25%.
01:25Free cash flow, 18%.
01:27Operating margin, 22%.
01:29They're all great numbers.
01:31Now, we have a ZFlex program that gives some flexibility in billings.
01:36So, billings can get impacted.
01:38But with ZFlex, customers are doing multi-year, four- or five-year deals with us, committing to ZSquare, which
01:46is a very strong sign.
01:47So, I don't think the billing should be viewed in a negative light.
01:51Overall, business is very strong.
01:53Jay, I want to go back to what you said about AI and protecting these AI agents and just how
01:59you're thinking about that.
02:00Because I think a lot of people are trying not just to understand the impact of AI on cybersecurity, but
02:05the impact of AI on a company like yours when it comes to operations.
02:09So, from an operations perspective, with the context of what we saw from Block late yesterday, the company relying more
02:15on AI and less on actual human beings,
02:18how are you using AI at the company operationally to increase your margins, to make your employees more productive?
02:25Or get rid of employees.
02:27Nobody's going to answer that.
02:30Everyone should and need to use AI.
02:33We use AI to make sure we can deliver better customer support to our employees.
02:38The AI agents are helping us.
02:40We are increasing productivity of our engineering team by using all this stuff.
02:45But I think the numbers that Block shared, they seem way out of line that anyone else is saying out
02:52there.
02:52We are seeing some reduction in hiring, additional hiring.
02:57But I do think that in some of these critical areas, you need people.
03:01I am hiring more developers for AI development, for example.
03:05And for us, many times customers think that as the number of employees may not grow, that means it impacts
03:13our user-based pricing.
03:17The user-based may slow down from growth point of view, but we are actually securing all the agentic traffic,
03:25all the agents.
03:26When we have millions of users, when we have millions of users, we'll have billions of agents to secure.
03:31That provides an opportunity for us to secure the enterprises and monetize it.
03:37Maybe, Jay, I want to go to a different topic around sovereigns, because we've been hearing more and more that,
03:44you know, every sovereign wants to build their own AI.
03:48How does that impact a company like yours that operates globally, given, you know, sovereigns are more keen to deploy
03:57this on-prem?
03:58Does that impact a cloud security company like yours?
04:03Actually, sovereign clouds is a positive development and opportunity for us.
04:09We built z-scaler architecture where the data that we store, which is essentially metadata and logs, can stay in
04:17that country.
04:18We have had a cloud that's built for EU and is EU with data in EU for a long time.
04:25Now, many of the large countries also want to operate the cloud in that country as well.
04:31We are working with many large countries to really provide them a sovereign security cloud that will access the data
04:38wherever the data is.
04:40So there are two aspects.
04:42There may be AI models sitting in India or France or Germany, but our sovereign security cloud will make sure
04:48they can access the model, whether it's sovereign or non-sovereign.
04:52So overall, it's a positive thing for us.
04:54It's our architecture that allows us to build sovereign security clouds.
05:01Yeah.
05:01And look, I mean, Amazon today announced this $50 billion investment in open AI.
05:07Google, we know, they've closed their acquisition of WIS.
05:10So how do you see, you know, the hyperscalers playing in this space where they obviously are deploying the models
05:18on their cloud?
05:19They are bundling security.
05:21Is that going to have some sort of an impact in terms of the AI security aspect that you alluded
05:27to?
05:29Not directly on providers like Zscaler.
05:34Look, hyperscalers, the cloud providers have been building applications and people said, oh, can they take over security market?
05:41We haven't seen any of that.
05:43It is true that AI model builders will provide some of the applications such as perhaps testing and red teaming.
05:51But when it comes to being the zero trust exchange, that makes sure that agents created by Microsoft, OpenAI, Anthropic,
06:01or whoever can securely access the right application.
06:04They look for someone like Zscaler.
06:07We become the switcher land that connects right party to right party, just like we built such a strong business
06:14for securing users in spite of all these other vendors out there.
06:18The more models they create, the more application they create, the more agents that they built, the more opportunities Zscaler
06:25has.
06:25Does that mean the hyperscalers, you're getting bigger orders from them?
06:29I'm just curious.
06:30Where are you getting business?
06:32And is it the hyperscalers?
06:34Is it?
06:34Yeah.
06:35We are getting business from enterprises because enterprises need to secure access to applications no matter where they are.
06:44So applications become destination for us.
06:47We are the switchboard providing zero trust access.
06:50The market we pioneered.
06:52And we are way ahead of anyone else.
06:54The rest of the market is doing firewalls and VPNs.
06:58And we are probably the only real credible choice for enterprises.
07:03And that's what has given us business.
07:05Over 45% of Fortune Fire-owned companies depend upon us today.
07:10How are these enterprises measuring the efficacy of your product versus, you know, whatever is coming bundled with the hyperscale
07:18solutions?
07:19Like, what is it that is really making them go with Zscaler in terms of the efficacy aspect specifically?
07:27So Zscaler is not a piece of code that you bundle with the hyperscaler that goes out there.
07:33Zscaler is a globally distributed infrastructure sitting in 160 locations around the globe.
07:39So any traffic from an enterprise that may be from users, that may be from cloud workloads, that may be
07:47from AI agents, it needs to access certain application services.
07:51And we become the switchboard, the policy enforcement for that.
07:55That traffic will go to Microsoft, AWS, Google, Anthropic, doesn't matter.
08:00We are the policy enforcement point to make sure right people get access to the right application, right agents get
08:07access to the right applications.
08:09Imagine agents getting hacked and hijacked on your network.
08:13That's a problem.
08:14That's what we secure.
08:15You mentioned Anthropic, and fresh in our minds is what's happening between the U.S. government, the Department of Defense,
08:22and Anthropic right now.
08:23We're going to be covering that in our 4 o'clock hour today.
08:25But on the government, is the U.S. government actually buying more of your services right now?
08:32Are deals happening?
08:33Are they getting delayed?
08:34How would you characterize that?
08:36So federal is a strong market segment for us.
08:40Last year, it went through some changes, but it is back on track.
08:45We have a strong pipeline.
08:46We have strong business in the federal government.
08:4913 of the 14 cabinet-level agencies use eScaler to secure themselves.
08:54So just to recap, 30 seconds.
08:57AI not a threat to your business?
09:00I mean, software?
09:02AI is an opportunity for our business.
09:04Not a threat?
09:05Not a threat at all.
09:07And securing agentic technology is the number one thing CIOs want to make sure they can do it.
09:14That's holding them back from larger rollout, and we become enablers of it.
09:19That's holding your control was fixed.
09:19All right.
09:19That's please.
09:19Good.
09:19All right.
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